Make someone bankrupt

If you are owed money, there are formal ways to demand payment. Before taking formal action, we strongly suggest that you first try to negotiate an informal payment agreement.

If a person (or debtor) owes you or your business $10,000 or more you may be able to apply to the court to make them bankrupt. This is called a creditor's petition.

To do this, you need to prove that the person has committed an 'act of bankruptcy' within the six months prior to your application. These acts are listed in section 40 of the Bankruptcy Act 1966. The most common act of bankruptcy is failure to comply with a bankruptcy notice.

Before making someone bankrupt

If a person is having trouble paying their debts, they may approach you as a creditor for assistance. Creditors are encouraged by consumer protection laws to take a flexible approach to payment arrangements.

Consumer protection laws are enforced by the Australian Competition & Consumer Commission (ACCC) and Australian Securities & Investments Commission (ASIC). Together they have published a guide you may find useful.

For more information see: Debt collection guideline for collectors and creditors.

If it isn't possible to come to an arrangement directly with a debtor, debt collection agencies may help you recover the debt. Seek legal assistance for advice on your rights and options available to you.

An example of the steps to make someone bankrupt, relying on a bankruptcy notice as the 'act of bankruptcy'

1. Get a court judgment or order
    
2. Apply for a bankruptcy notice
   See: How do I apply for a bankruptcy notice
    
3. Serve the bankruptcy notice
   See: Serve, amend or extend a bankruptcy notice
    
4. File a creditor’s petition with the courts
   See: File a creditor's petition
    
5. The sequestration order
   If a court accepts your creditor's petition, it may make a sequestration order. This makes the person bankrupt.

For more information see: Official Receiver Practice Statement 3 - Bankruptcy by sequestration order and Official Receiver Practice Statement 6 – Applying for a bankruptcy notice.

Judgments and orders

To apply for a bankruptcy notice you must provide a final judgment or order from a court that proves an individual owes you a debt.

We encourage you to Seek legal assistance or contact your local court for more information on this process. We are unable to provide legal advice about how to obtain a judgment.

The judgment or order must:

• show that the person (or debtor) owes you $10,000 or more and
• be less than 6 years old.

Include one of the following in your bankruptcy notice application:

• a copy of the sealed or certified judgment/order.
• a certificate of the judgment/order sealed by the court or signed by an officer of the court.
• a certified copy of the court entry of the judgment/order. 'Certified' means an officer of the court has sealed or signed it.

Can I lodge more than one judgment?

Yes. You can include more than one judgment or order to show a combined debt of $10,000 or more.

Can I base a bankruptcy notice on 2 judgments from different creditors?

No. However, you can use 2 or more judgments for debts owed to the same creditor to apply for a bankruptcy notice.

Filing documents

Throughout the process of making someone bankrupt you must lodge certain documents, commonly:

• bankruptcy notice application - using our online services
• creditor’s petition - endorsed by the court
• trustee consent to act declaration - using Form 12.
• sequestration order - made by the court.

Bankruptcy documents

If you have initiated the following procedures in court, you must lodge certain documents with us within a set timeframe. If you don't, you could face penalties, including an infringement notice.

You must file bankruptcy documents with us in the following timeframes.

• Creditors' petition and related orders (including stay, extension, dismissal or adjournment) - within 2 business days of the court:
  • filing the petition
  • making an order dismissing, staying or extending the order; or
  • adjourning the hearing of the petition.
• Interim control orders - within 2 business days of the order being made (this includes orders, applications, affidavits).
• Sequestration orders and related orders - within 2 business days of the court making the order.
• Trustee consent to act declaration (only if you choose to nominate a trustee) - when the creditor’s petition is filed or before the day on which the court makes the sequestration order.
• Part XI deceased estate administration orders - within 2 business days of the court making the order. For more information see Deceased estates.

For more information see Filing requirements.

How to appoint a trustee

You can choose to appoint a particular trustee to manage the bankruptcy. For a full list of all trustees review the Registered trustees contact list.

To appoint a trustee, the trustee must complete a Consent to act as trustee form.

It’s not mandatory to appoint a trustee.  If you don’t, we'll appoint one on your behalf. This could be either a:

• registered trustee or
• the Official Trustee in Bankruptcy (AFSA).

What happens once I make the person bankrupt?

• The trustee will notify the person of their bankruptcy.
• The trustee will send the person a Bankruptcy Form including instructions how to complete the form online. The completed form will need to be submitted within 14 days.
• The earliest day that the bankruptcy can end is 3 years and 1 day after acceptance of the Bankruptcy Form.

Once we register the bankruptcy

• The trustee will manage the bankruptcy and investigate whether they can claim assets to pay creditors.
• The individual may need to make compulsory payments if they earn over a set amount.
• If funds become available to pay creditors, the trustee will contact you with further instructions.

For more information see Your rights as a creditor.

Deceased estates

If someone passes away in debt, it may be possible to make their deceased estate bankrupt. This is in accordance with Part XI of the Bankruptcy Act 1966.

To do this, you must apply to the Federal Court or Federal Circuit Court. For more information about the court process, forms and fees, contact them.

It is possible that state and territory probate laws deal with insolvent deceased estates.  You should seek legal assistance regarding this process.

People who can bankrupt a deceased individual are:

• a creditor of the deceased estate, or
• the administrator, executor or legal personal representative of the deceased estate.

For more information see Official Receiver Practice Statement 5 - Administration of estates of deceased persons.

If you are a creditor of a deceased estate

If you are a creditor wanting to bankrupt a deceased estate, it is a similar process to a creditor's petition. You must:

• Present a petition to the Federal or Federal Circuit Court by filing with them:
  • Form B14 - Applicant creditor's petition for administration of deceased person's estate - available from the court at fedcourt.gov.au
  • The court may also require you to provide affidavits in support of your application.
• Prove that the deceased met the Australian connection requirements.
• Prove that the deceased owed you and/or other creditors at least $10,000. (There is no need to prove an 'act of bankruptcy').
• You can choose to appoint a trustee (this is not mandatory). For a full list of all trustees review the Register of trustees contact list.
  • The trustee will need to complete a trustee consent to act form and give a copy to the Official Receiver when the petition is filed or before the day on which the court makes the order.
• Serve a sealed copy of the petition on the deceased's legal personal representative, if there is one.
• File a copy of the court application (with Form B14) with us within 2 business days of the court filing the petition.

If the court makes an order that the deceased estate be administered, this makes the estate bankrupt:

• The creditor who obtained the order must, before the end of the period of 2 business days beginning on the day the order was made, give a copy of the order to the Official Receiver.
• We register the bankruptcy on the National Personal Insolvency Index (NPII).
• A trustee is appointed to manage the bankruptcy. If you don't nominate a trustee, we choose one for you.
• We send a statement of affairs to the deceased's legal personal representative to complete. They should file this with us within 28 days of them receiving notification.

If you are the administrator of a deceased estate

If you are the administrator (or executor or legal personal representative) of the deceased individual's estate, to bankrupt them you must:

• Present a petition to the Federal or Federal Circuit Court. You need to include 2 forms with your petition:
  • Form B15 - Administrator's petition - available from the Federal Court website at Forms under the Federal Court (Bankruptcy) Rules 2016
  • Form 4 - Statement of affairs under Part XI
• The court may require you to provide affidavits to verify your capacity to act on behalf of the deceased estate.
• Prove that the deceased met the Australian connection requirements.
• You can choose to appoint a trustee (this is not mandatory). For a full list of all trustees review the Register of trustees contact list.
  • The trustee will need to complete a trustee consent to act form and give a copy to the Official Receiver when the petition is filed or before the day on which the court makes the order.
• File with us a copy of the court application (with Form B15 and Form 4). You must do this within 2 business days of the court endorsing the petition.

If the court makes an order that the estate be administered under this Part, this makes the estate bankrupt:

• You must, before the end of the period of 2 business days beginning on the day the order was made, give a copy of the order to us.
• We register the bankruptcy on the National Personal Insolvency Index (NPII).
• A trustee is appointed to manage the bankruptcy. If you don't nominate a trustee, we choose one for you.